A few weeks ago, I talked about the SoFi Weekly Income ETF (TGIF). It's an ETF that bucks the fund industry trend of delivering dividend distributions on either a monthly or quarterly basis, and makes its payments on every Friday of the week. If you're someone who relies on your portfolio for regular income, this could be an ETF to consider.
There's one factor to consider though. TGIF is a fixed income portfolio investing in a combination of investment-grade and high yield bonds. That helps to boost dividend income, but many investors may prefer a similar payout structure from an equity portfolio instead. Enter the SoFi Weekly Dividend Income ETF (WKLY).
How Does WKLY Work?
WKLY tracks the SoFi Sustainable Dividend Index, which is made up of the most consistent dividend-paying companies globally. Stocks selected for the index must have maintained their dividend payments over the last 12 months and been forecasted to continue to pay over the next 12 months. WKLY tries to avoid stocks which are deemed to be at risk of reducing their dividend payouts.
The payout ratio screen helps to ensure that dividend payments are sustainable and can be continued moving forward. The debt/equity ratio provides a similar screen to try to avoid companies that might be financially overextended. The dividend yield requirement is interesting in that it attempts to deliver an above average yield on top of everything else.
The immediate question that should come to mind is how is this fund able to distribute income on a weekly basis. After all, most stocks only pay dividends on a quarterly basis. WKLY would likely either need to accumulate income and distribute it slowly over subsequent weeks or it might need to issue a return of capital in order to fill in the gaps until income is received.
Right now, WKLY is making a fixed $0.02 a week distribution. Based on the current share price, that translates into a forward-looking yield of about 2.1%, which is consistent with its goal of providing a slightly above average dividend yield. It's important to note that while SoFi will attempt to maintain a steady distribution, it will be impacted by changes in the marketplace. If dividend rates or interest rates fluctuate, the weekly distribution may also fluctuate up and down.
WKLY charges an expense ratio of 0.49%. This could ultimately become a problem for the fund since investors are paying attention to two main groups of ETFs - ultra-low cost index funds and next-gen tech and innovation, such as the ARK ETFs. Anything that resembles a diversified large-cap fund with a higher expense ratio might get ignored. Is the weekly distribution structure enough to attract attention? Perhaps. WKLY is only about one month old, but still has only $3-4 million in assets, suggesting a slow start.
There are a lot of mature companies among the top holdings, such as Bank of America (BAC), Procter & Gamble (PG), JPMorgan Chase (JPM), Verizon (VZ), Coca-Cola (KO) and Intel (INTC). There's not a whole that might be considered "exciting" about this portfolio, but the cash-rich nature of these businesses could stand up well in the next market downturn.
If you're investing in WKLY, it's almost certainly because of the weekly distribution schedule, not necessarily because of the portfolio. I don't have a good sense as to whether SoFi account holders are requesting a product such as this but I can see how it would be appealing to at least a subset of the investor universe. And it's undoubtedly unique in a crowded ETF market.
WKLY also comes with a potential compounding advantage. If you're reinvesting dividends, a greater distribution frequency has the ability to generate a slightly better compounding of returns. Given the 2% yield, any advantage is probably modest at best, but it can be an advantage.
I'd be nervous that the expense ratio could leave this ETF in obscurity. Plus, is the weekly distribution structure worth the extra 40 basis points in fees? In my opinion, the answer is no. I'd rather have that money in my pocket and figure out another way to create a weekly payout schedule.
WKLY's underlying index only rebalances on a quarterly basis. Given the nature of the companies being held, there probably won't be the significant swings that you find elsewhere in the marketplace, but I generally prefer a faster rebalance so the portfolio doesn't become stale.
I think WKLY is still too small to be investing in right now. Even when it grows larger, I'm not sure I have a particular need for a weekly distribution schedule. I'm confident that this idea will appeal to at least a group of income-seeking investors out there, but the question is how many? WKLY's sister fund, TGIF, has been around since last October and is still only at around $18 million in assets. Perhaps it will change over time, but there doesn't appear to be a huge amount of interest in these ETFs yet.